At the heart of the Internet business is one of the great business fallacies of our time: that the Web, with all its targeting abilities, can be a more efficient, and hence more profitable, advertising medium than traditional media. Facebook, with its 900 million users, valuation of around $100 billion, and the bulk of its business in traditional display advertising, is now at the heart of the heart of the fallacy.

The daily and stubborn reality for everybody building businesses on the strength of Web advertising is that the value of digital ads decreases every quarter, a consequence of their simultaneous ineffectiveness and efficiency. The nature of people’s behavior on the Web and of how they interact with advertising, as well as the character of those ads themselves and their inability to command real attention, has meant a marked decline in advertising’s impact.

This is the first time I have read anything from a major media writer (and Michael is very much that — in fact I believe he is the best in the biz) that is in full agreement with The Advertising Bubble, my chapter on this very subject in The Intention Economy: When Customers Take Charge. A sample:

One might think all this personalized advertising must be pretty good, or it wouldn’t be such a hot new business category. But that’s only if one ignores the bubbly nature of the craze, or the negative demand on the receiving end for most of advertising’s goods. In fact, the results of personalized advertising, so far, have been lousy for actual persons…

Tracking and “personalizing”—the current frontier of online advertising—probe the limits of tolerance. While harvesting mountains of data about individuals and signaling nothing obvious about their methods, tracking and personalizing together ditch one of the few noble virtues to which advertising at its best aspires: respect for the prospect’s privacy and integrity, which has long included a default assumption of anonymity.

Ask any celebrity about the price of fame and they’ll tell you: it’s anonymity. This wouldn’t be a Faustian bargain (or a bargain at all) if anonymity did not have real worth. Tracking, filtering and personalizing advertising all compromise our anonymity, even if no PII (Personally Identifiable Information) is collected. Even if these systems don’t know us by name, their hands are still in our pants…

The distance between what tracking does and what users want, expect and intend is so extreme that backlash is inevitable. The only question is how much it will damage a business that is vulnerable in the first place.

The first section of the book opens with a retrospective view of the present from a some point in the near future — say, five or ten years out. A relevant sample:

After the social network crash of 2013, when it became clear that neither friendship nor sociability were adequately defined or managed through proprietary and contained systems (no matter how large they might be), individuals began to assert their independence, and to zero-base their social networking using their own tools, and asserting their own policies regarding engagement.

Customers now manage relationships in their own ways, using standardized tools that embrace the complexities of relationship—including needs for privacy (and, in some cases, anonymity). Thus loyalty to vendors now has genuine meaning, and goes as deep as either party cares to go. In some (perhaps most) cases this isn’t very deep, while in others it can get quite involved.

When I first wrote that, I said 2012. But I decided that was too aggressive, and went with the following year. Maybe I was right in the first place. Time will tell.

Meanwhile, here’s what Michael says about the utopian exhaust Facebook and its “ecosystem” are smoking:

Well, it does have all this data. The company knows so much about so many people that its executives are sure that the knowledge must have value (see “You Are the Ad,” by Robert D. Hof, May/June 2011).

If you’re inside the Facebook galaxy (a constellation that includes an ever-expanding cloud of associated ventures) there is endless chatter about a near-utopian (but often quasi-legal or demi-ethical) new medium of marketing. “If we just … if only … when we will …” goes the conversation. If, for instance, frequent-flyer programs and travel destinations actually knew when you were thinking about planning a trip. Really we know what people are thinking about—sometimes before they know! If a marketer could identify the person who has the most influence on you … If a marketer could introduce you to someone who would relay the marketer’s message … get it? No ads, just friends! My God!

But so far, the sweeping, basic, transformative, and simple way to connect buyer to seller and then get out of the way eludes Facebook.

The buyer is a person. That person does not require either a social network or absolutely-informed guesswork to know who she is or what she wants to buy. Obviously advertising can help. It always has. But totally personalized advertising is icky and oxymoronic. And, after half a decade or more at the business of making maximally-personalized ads, the main result is what Michael calls “the desultory ticky-tacky kind that litters the right side of people’s Facebook profiles.”

That’s one of mine on the right. It couldn’t be more wasted and wrong. Let’s take it from the top.

First, Robert Scoble is an old friend and a good guy. But I couldn’t disagree with him more on the subject of Facebook and the alleged virtues of the fully followed life. (Go to this Gillmor Gang, starting about an hour in, to see Robert and I go at it about this.) Clearly Facebook doesn’t know about that. Nor does any advertiser, I would bet. In any case, Robert likes so many things that his up-thumb has no value to me.

I have no interest in Social Referrals, and if Facebook followed what I’ve written on the subject of “social” (as defined by Facebook and its marketing cohorts), it wouldn’t imagine I would be interested in extole.com.

I’m 64, but married. “Boyfriend wanted” is a low-rent fail as well as an insult.

I get the old yearbook pitch every time I go on Facebook, which is as infrequently as I possibly can. (There are people I can only reach that way, which is why I bother.) I don’t even need to click on the the ad to discover that, as I suspected, 60s.yearbookarchives.com is a front for the scammyClassmates.com.

I’ve never been fly flishing, and haven’t fished since I was a kid, many decades ago.

And I don’t want more credit cards, of any kind, regardless of Scoble’s position on Capital One.

In a subchapter of The Filter Bubble titled “A Bad Theory of You,” Eli Pariser calls both Facebook’s and Google’s data-based assumptions about us “pretty poor representations of who we are, in part because there is no one set of data that describes who we are.” He also says that at best they put us into the uncanny valley — a “place where something is lifelike but not convincingly alive, and it gives people the creeps.” But what you see on the right isn’t the best, and it’s not uncanny. It’s typical, and it sucks, even if it does bring Facebook a few $billion per year in click-through-based revenues.

The amazing thing here is that business keeps trying to improve advertising — and always by making it more personal — as if that’s the only way we can get to Michael’s “sweeping, basic, transformative, and simple way to connect buyer to seller and then get out of the way.” Three problems here:

By its nature advertising — especially “brand” advertising — is not personal.

Making advertising personal changes it into something else that is often less welcome.

There are better ways to get to achieve Michael’s objective — ways that start on the buyer’s side, rather than the seller’s.

Don Marti, former Editor-in-Chief of Linux Journal and a collaborator on the advertising chapters in my book, nails the first two problems in a pair of posts. In the first, Ad targeting – better is worse? he says,

Now, as targeting for online advertising gets more and more accurate, the signal is getting lost. On the web, how do you tell a massive campaign from a well-targeted campaign? And if you can’t spot the “waste,” how do you pick out the signal?

I’m thinking about this problem especially from an IT point of view. Much of the value of an IT product is network value, and economics of scale mean that a product with massive adoption can have much higher ROI than a niche product…. So, better targeting means that online advertising carries less signal. You could be part of the niche on which your vendor is dumping its last batch of a “boat anchor” product. This is kind of a paradox: the better online advertising is, the less valuable it is. Companies that want to send a signal are going to have to find a less fake-out-able medium.

The more targeted that advertising is, the less effective that it is. Internet technology can be more efficient at targeting, but the closer it gets to perfectly tracking users, the less profitable it has to become.

The profits are in advertising that informs, entertains, or creates a spectacle—because that’s what sends a signal. Targeting is a dead end. Maybe “Do Not Track” will save online advertising from itself.

Facebook makes 82% of its money by selling targeted display advertising – boxes on the top and right side of the site (it’s recently added ads at logout, and in newsfeeds). Not a particularly unique model on its face, but certainly unique underneath: Because Facebook knows so much about each person on its service, it can target in ways Google and others can only dream about. Over the years, Facebook has added new advertising products based on the unique identity, interest, and relationship data it owns: Advertisers can incorporate the fact that a friend of a friend “likes” a product, for example. Or they can incorporate their own marketing content into their ads, a practice known as “conversational marketing” that I’ve been on about for seven or so years (for more on that, see my post Conversational Marketing Is Hot – Again. Thanks Facebook!).

But as many have pointed out, Facebook’s approach to advertising has a problem: People don’t (yet) come to Facebook with the intention of consuming quality content (as they do with media sites), or finding an answer to a question (as they do at Google search). Yet Facebook’s ad system combines both those models – it employs a display ad unit (the foundation of brand-driven media sites) as well as a sophisticated ad-buying platform that’d be familiar to anyone who’s ever used Google AdWords.

I’m not sure how many advertisers use Facebook, but it’s probably a fair guess to say the number approaches or crosses the hundreds of thousands. That’s about how many used Overture and Google a decade ago. The big question is simply this: Do those Facebook ads work as well or better than other approaches? If the answer is yes, the question of valuation is rather moot. If the answer is no…Facebook’s got some work to do.

But Facebook isn’t the real issue here. Working only the sell side of the marketplace is the issue. It’s now time to work the buy side.

The simple fact is that we need to start equipping buyers with their own tools for connecting with sellers, and for engaging in respectful and productive ways. That is, to improve the ability of demand to drive supply, and not to constantly goose up supply to drive demand, and failing 99.x% of the time.

This is an old imperative.

In The Cluetrain Manifesto, which Chris Locke, David Weinberger, Rick Levine and I wrote in 1999, we laid into business — and marketing in particular — for failing to grok the fact that in networked markets, which the Internet gave us, individuals should lead, rather than just follow. So, since business failed to get Cluetrain’s message, I started ProjectVRM in mid-2006 at Harvard’s Berkman Center. The idea was to foster development of tools that make customers both independent of vendors, and better able to engage with vendors. That is, for demand to drive supply, personally. (VRM stands for Vendor Relationship Management.)

Imagine being able to:

name your own terms of service

define for yourself what loyalty is, what stores you are loyal to, and how

be able to gather and examine your own data

advertise (or “intentcast”) your own needs in an anonymous and secure way

manage your own relationships with all the vendors and other organizations you deal with

… and to do all that either on your own or with the help of fourth parties that work for you rather than for sellers (as most third parties do)

Here’s the thing, and why now is the time to point this out: most of those developers have a hell of a time getting laid by VCs, which on the whole have their heads stuck in a calf-cow model of the Web, and can’t imagine a way to improve the marketplace that does not require breeding yet another cow, or creating yet another ranch for dependent customers. Maybe now that the bloom is off Facebook’s rose, and the Filter Bubble is ready to burst, they can start looking at possibilities over here on the demand side.

So this post is an appeal to investors. Start thinking outside the cow, and outside the ranch. If you truly believe in free markets, then start believing in free customers, and in the development projects that make them not only free, but able to drive sales at a 100% rate, and to form relationships that are worthy of the word.

Brett, c’mon, be fair – note the sentence in the post “Eli Pariser calls both Facebook’s and Google’s data-based assumptions about us …”. With all the hype about the Facebook IPO, basing a post around Facebook isn’t unreasonable.

Doc, regarding – “He calls empty the glass I’m working to see filled. “, I’d say it’s more along the lines of “He calls untreatable the disease I’m trying to cure with my innovative methods”. There’s people who think cancer can be cured by coffee enemas (I am not making this up!).
I hope the problems with getting caught up in something like that are obvious (i.e. even if well-intentioned, even if the proponent really does believe in the coffee enema cancer cure, there’s all sorts of downsides).

I’ve been saying this for a decade. I simply don’t see how anyone in online advertising is making real money or getting real results. I’ve been on the web for 13 years and never once clicked, opened or watched an ad on purpose.

Thanks for this great analisys. Would you say that the case is different for B2B companies? It seems to me that they successfully implement content marketing strategies instead of aggressive advertising given the nature and complexity of their products and services. They can name their terms of services and “intentcast” needs, manage their own relationships with vendors etc.

So, in short, the VRM imperative is this: what marketplaces would benefit most from empowered buyers specifiying their needs up front?
Well, Facebook & Google should have a strong suspicion I’m planning a wedding, and, indeed, neither have any value-added service to offer us in terms of connecting us with the small businesses who can meet our specific needs.

So any point about Facebook being incompetent or unseemly generally seems immaterial to the above. I still am having trouble grokking Don Marti’s point about the size of the ad campaign being interpreted as a proxy for the quality of the product — I could not track down his sources on that to anything substantive.

You could see VRM as a qualified leads business, in which the leads themselves do their own qualifying. What marketplace wouldn’t welcome that?

Either Facebook or Google could get into the VRM business, if they liked. I’d welcome them. But there’s still plenty of money helping advertisers guess at what prospects might want, so they’re not inclined.

The journals Don and I researched for The Intention Economy were Harvard’s, and they’re unavailable to both of us at this point. But the results are in the book, which cites them, so I recommend you pick up a copy. It should answer other questions as well. (And raise some too, by intent.)

The article is from 1984, not 1994. The article is a lot of math; the objective of the investigators, as far as I could tell, was to validate the price-signaling theory put forth by Philip Nelson, in the 1970’s.

I wouldn’t dismiss an academic theory from the 1970’s out of hand; I just suspect that there’s been a lot of research which expanded, or otherwise contested, parts of Nelson, not to mention changes in consumer behavior.

What the heck, JStor gives us a free preview of the first page of Nelson’s “Information and Consumer Behavior” (1970), so let’s figure out why Nelson postulated that advertising signals price to begin with. 1970, here we come:

“Consumers are continually making choices among products, the consequences of which they are but dimly aware. Not only do consumers lack full information about the prices of goods, but their information is probably even poorer about the quality variation of products simply because the latter information is more difficult to obtain.”

Forty years later, we are in a world where the full information about the prices of goods, and information about the quality of them, is at our fingertips.

(Except, of course, in the wedding industry, necessitating a meeting with each an every vendor… 😉

First, thanks for catching the typo. Should there be a second edition (and I trust there will be), I’ll take the correction.

Second, the book was informed by more sources than were cited, though I tried to be as generous as I could with endnotes. That one source was old does not mean they all were. Nor, as you agree, does the antiquity of a cited source make it irrelevant.

Third, I don’t believe we are yet in a world where the full information about anything is yet at our fingertips. There is certainly an abundance of it out there, but finding it all, and making sense of it, is not a given for everything.

True, times have changed, and are changing still. One of my many cautions in the book is toward assuming that today’s big-data-driven hyper-personalized online advertising, much of it based on degrees of surveillance that are unknown to the user, and mostly out of his or her control (that is, if he or she wishes to participate in the commercialized Web), is normative only at this moment in time, and not fully understood, even by its practitioners, even if it is fully rationalized. It doesn’t hurt to bring in some proven principles of advertising (such as branding of the old-fashioned sort), to help figure out why some things work and others don’t.

Fourth, I’m not playing the guru here. I’m just a guy who thinks the development of business in the networked world is still at an early stage, and that equipping customers with tools for both independence and engagement is an opportunity worth exploring. I do believe that the Intention Economy is the likely result of that, but hey: I could be wrong. I wrote the book to think out loud about the possibilities, and to both stimulate more development while supporting the develpment work already taking place. This work isn’t happening because I’m playing the guru (which I try not to do), or talking about stuff at conferences. Most of it started without my involvement at all. But there is in the community a sense of common purpose.

As groundswells go, the elevation isn’t high yet. But a lot of good, smart and hard-working people are shaking it, and I think that deserves some respect.

Fifth, since you’re a local, I hope you can make it to my talk at Harvard Law School on June 11, and participate as well. And pass the word around. The students are gone then, along with most faculty as well, so the gathering will probably have a different mix than the usual events there.

And finally, look up “buying a wedding dress online.” The results suggest that many brides doing all their dress shopping without visiting a dress shop. I read an article about that, but I’m afraid that it’s a needle in the dress vendor haystack, and I don’t want to be followed by bridal ads for the next three months, so I won’t dig for it. Meaning you might want to spare yourself that research effort as well. (BTW, I’ve found that doing searches in “private” or “incognito” mode fails to keep the trackers from following me later, throwing up ads for stuff I searched for once, presumably invisibly and anonymously.)

A number of sellers have the same problem with ads that they have with their own web sites. They know what they want to tell the buyer, and what they want the buyer to see. This can make it very difficult for a potential buyer to find information that will lead them to the product they actually want.

Don, getting into the Harvard library non-physically requires an affiliation both of us lack at this point. (Mine ended when the fellowship ran out. Even though ProjectVRM is still at the Berkman Center, the library privileges don’t go with that.) But I’ll see what I can do.

I read this yesterday and it has been bubbling away in my head since. I haven’t read your ProjectVRM site yet so I am not sure what your direction is but…
I recently touched upon some work involving Australia’s major directory service (Sensis). They are having some major trouble with their business model because simply building a list of phone numbers is not sufficient where Google can provide full details about a company.
However, it occurs to me that HAVING a complete set of contact information about every company in the country puts the Yellow Pages in an enviable position in terms of setting up a VRM type web-site.
All that would be required to in the first draft would be some social media type functions such a favouriting, sharing, providing feedback etc. so potential consumers can rate potential providers for themselves. Eventually some deeper relationship building tools would be needed – but not a lot. More like singles introduction sites rather than sales.
The trouble is that it would cause a 180 shift in perspective from the company providing the VRM service – from vendor advocate to customer advocate.
That and understanding how the monetisation works. Probably why investors are not involved is that they don’t see how the idea makes money – it is easier to collect a lot from a few than a little from very many.
Apologies for the brain dump in your comments section 🙂

The model that can enable the “imagine you could” list is that of Diaspora, whereby you own and control your data but can still disclose and share it with others as you want.

This model is the way forward for medical and health, financial sharing etc.

I imagine the buyer seller transaction as it has existed for time eternal .. buyer meets seller and a negotiation begins .. but with the Diaspora model you can open your “imagine you could” list to seller at that time and go from there.

Caveats here are that both parties are ready to be flexible enough to respond and deliver negotiations.

I am not completely certain though that the Facebook model will fail .. with better AI for lack of better term, better algorithms, data mining, whatever… its representation of life is going to get better. At some point it will be indistinguishable .. right? Isn’t that the trajectory?

But personally, I want my data, I want to share it when and how I want. I want reward for it .. if advertisor is paying, then i wnat that affiliate payment or a cut, or a discount when i buy.

“We are not seats or eyeballs or end users or consumers. We are human beings …”

The problem is that when to business we *are* in fact seats or eyeballs, etc, not human beings, that (social relationship) pathology can’t be changed by the equivalent of the coffee enema cancer treatment. And the exchanges follow a predictable path, something like:

1: Cancer is a disease, an uncontrolled growth of cells. Therefore, to cure it, I’ve come up with CoffeeEnemaDiseaseManagement.

2: Well, it’s been tried and tried and tried, and never worked before.

1: But has this particular blend ever been tried? And that brewing system? Why not stop carping and being negative, and join our team of coffee roasters?

2: What reason could any of that make a difference?

1: I’m glad you asked. Cancer is a disease of uncontrolled growth, right? So by stimulating other cells with the coffee, it makes the bad cells relatively weaker, see my article for “Enema 2.0 Conference”

When recalling how some of these criticisms were lodged against Amazon in the past, and thinking about how at least Amazon was using the information to sell their own products, I started to see all of this more in the vein of a huge multi-level marketing scheme, but one in which there are no middle men.

The point being, if no one is actually buying any product, but just adding new people, the model will implode.

Regarding “So the disease is a social relationship pathology within business in
which both consumers and customers are regarded as non-human. Do I have that right? If so, we agree on that.”

Close enough. We could refine, e.g. “dehumanizing” might be a better word than “non-human”. But I think we actually are broadly in agreement on initial statements. The difficulty is what comes after.

“Then how would you treat that pathology, if not by anything I’m prescribing, …”

Ah, this is the problem. I recognize that you and many Berkman people work in an environment where much of what you can say is *immensely* constrained by what’s acceptable to corporate executives. That’s why so much of what comes out of it is roughly “Here’s a techno-gimmick that’ll solve this tough social problem, and look, big business types, there’s opportunities to make money off it, or at worst, it’ll solve some negative social effects of your business without bothering you at all!”. I grasp that approach is considered far-left radicalism in a relative sense, for not being as slaveringly plutocratic as those who wallow in corporatism and think the function of intellectuals is to justify big business (as opposed to putting a human face on it and abstractly sympathizing with some negatives).

So if I start saying even the mildest things – gee, what does work, in terms of favoring more human(istic) business arrangments? – I have a sad feeling even the mildest aspects will be off the table in terms of utility to you.

Q) Who is the most important person at The New York Times?
A) Their best ad salesperson.
Having been first a writer then a content creator, I understand this paradox–even at the top of the content food chain, the commercial interest predominates. Is this wrong? Not at all–it provided us with a transactional model of information generation and dissemination that has served well for over 150 years.
But to Doc’s point, we are witnessing, finally, the birth of a new model that represents a substantive break with the past. It’s obvious that Facebook represents the last hurrah of the old order–the last “mass medium” that served impressions of commercially-oriented information that subsidized the production of the high-value information the reader initially sought. The new order–the discontinuous model that alters the matrix of financial exchange for information, falls within what Doc describes as the VRM. The notion has been inchoate since Toffler’s pro-sumers from the early 80’s; now people will have the ability to exercise agency in the commercial domain for information in ways never before seen. And Facebook is most assuredly not a platform for that.
The question is how to get enough people up to speed in the skills needed to accomplish makes the transition to self-aware info pro-sumers. I think Howard Rheingold has done a nice job in his new book “Net Smart” of laying out a kind of curriculum for people to start building these kinds of personal toolkits, as well as exploring the critical thinking skills necessary to proactively and sustainably develop this new kind of agency.

And don’t assume I’m in lock-step with the Berkman Center. That’s never been the case. To my knowledge, ProjectVRM is the only project in Berkman history that set out from the start to encourage development projects, including commercial ones, to address a market issue, rather than a social or a policy one.

FWIW, I am also not constrained at all by “what’s acceptable to corporate executives.” That I do try to talk with them (or at least some of them), and make sense to them, does not mean I am constrained by them. Nor does it mean they’re the only people I talk to.

So if you can lay off the personal (and associative) characterizations, and tell me what your prescriptive solutions are, I’m all ears. (I am anyway, but the characterizations — especially when they ring so false to me — are digressive at best.)

I’m wondering… Would what Don Marti suggests here be something you’d find agreeably prescriptive? Or, pivoting off VRM as it does, is it more coffee enema?

That link also mentions what I see as the biggest obstacle to VRM — many vendors rely on confuseopoly and other non-transparent price discrimination. Making the company more transparent to VRM tools (whether controlled by the user or 4th parties) makes those two tactics harder.

VRM obviously won’t work, at least in the short run, where confusopoly and other gimmicks are the norm. But the world is bigger than that. In the book I give the example of Trader Joe’s and other retailers that essentially have no marketing and go out of their way not to play the gimmick game at all.

When recalling how some of these criticisms were lodged against Amazon in the past, and thinking about how at least Amazon was using the information to sell their own products, I started to see all of this more in the vein of a huge multi-level marketing scheme, but one in which there are no middle men.

Regarding – ” … but the characterizations — especially when they ring so false to me — are digressive at best” – no offense intended. I had a longer reply, but I decided to dump it as I’ll probably get myself in trouble. We are talking somewhat at, not exactly cross-purposes, but a very different view of the meaning of certain phrases (i.e. like to some people “Socialism” means the Soviet Union, while to others it’s Barack Obama’s economic policies). I’m worried that I’m getting myself into a hole here, and I’d better stop digging. I always resolve not to do this stuff due to the horrible risk/reward ratio, but so far I always break that resolution.

You’ve responded to my critique of your book chapter (and blog post) by asking me to spread the word about your talk? What I want is for somebody with access to your sources to put it in a much more clear analysis. I continually find you still leaning on these broad statements with the flimsiest of backing.

Two years ago, on this blog, you wrote a post titled “Brands are Boring.” You undermined it by summarily recalling fifty year-old beer jingles. And your actual point on that blog post was not that brands are boring, but they’re antiquated — ideas that worked in an age of limited channels. On another post (“Brands are Bull”), you remind readers about the genesis of branding from the cattle industry. And the Project VRM wiki follows along, in defining itself as a system which rejects “the language and thinking of slave-owners when dealing with customers.”

Today you are telling us not only that brands are important, but that they are the most important thing, because of this signalling theory. You had no idea what the actual source of this was, trusting that readers would be content that it was an academic journal article that they would probably never read.

What is it? Are brands antiquated, evil, or… essential?
Likewise, are consumers better served by economies of scale (which can underwrite larger advertising campaigns), or by smaller vendors which can engage in more direct conversations?

Easy answer: it depends on the industry and type of good.
Follow-up question: in which industries & goods, how do these different drivers apply?

The point for me is… I believe that the efficiency of advertising is not the right question, nor is the targeting, not segmentation, nor value for money, nor ROI. Advertising cannot simply be boiled down to such a one dimensional ratio as there is more than one reason that Brands do something.

The observation is that the internet can be both more effective and less efficient at the same time, this does not make it a winner or a loser.

My insight would be that digital services bring what other non-digital services cannot bring – Digital delivers a closed loop feedback system and that is where the value is…..